While Moody’s has upgraded India’s rating, over-exuberance may be costly, as it has also said that a material deterioration in fiscal metrics and the outlook for general government fiscal consolidation would put negative pressure on the rating.

India had earlier called Moody’s as “prophets of doom.” (Image: Reuters)

Amid the growing exuberance of the Indian government on the Moody’s India credit rating upgrade, many opposing voices have pointed out that just five months ago, the Modi-government junked these ratings. On Friday, global rating agency Moody’s Investors Service upgraded India’s local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive. In May 2017, Chief Economic Advisor Arvind Subramanian had said, “The ratings agencies have been inconsistent in their treatment of China and India. Given this record — what we call Poor Standards — my question is: why do we take these rating analysts seriously at all?”

The former Union Minister, P Chidambaram took a swipe at the Modi-government saying, “Five months ago, this very government through its economic affairs secretary had written a strong letter to Moody’s, saying your methodology is useless. Today, they have fallen in love with Moody’s and I do not mind that.” In May 2017, then Economic Affairs Secretary Shaktikanta Das had criticised the global rating agencies for being detached from ground realities in India, and suggested that they introspect.

“The ranking improved not because what happened yesterday but it improved based on what happened over seven or eight years. I am happy that Moody’s has raised India’s ranking … A major contribution to it was made by the UPA government and the other part of the contribution was by the present government,” PTI reported P Chidambaram as saying.

Shaji Vikraman, Executive Editor at Indian Express points out in today’s column, “India’s relationship with global ratings agencies is complicated, swinging between warm and frosty, appreciative and strongly critical.” In the same piece the author observes that in 1998, after the Pokhran nuclear tests, when Moody’s downgraded India’s sovereign credit rating from investment grade to junk, the then Finance Minister Yashwant Sinha had criticised the agency, calling them “prophets of doom.”

“Former Finance Minister P Chidambaram says that the “dashboard is flashing red” on the three key indicators of the health of the economy — gross fixed capital formation and private sector investment; credit growth, especially for small businesses; and jobs — and getting those going again might, in fact, mean “not taking raters seriously,” points out Shaji Vikraman.

While Moody’s has upgraded India’s rating, over-exuberance may be costly, as it has also said that a material deterioration in fiscal metrics and the outlook for general government fiscal consolidation would put negative pressure on the rating. “The rating could also face downward pressure if the health of the banking system deteriorated significantly or external vulnerability increased sharply,” noted Moody’s in its report.